Shadow Banking

We were witness today to a recurrent Natural frustration. No sooner does our magnolia tree start to break into bloom than the most malevolent wind in weeks comes up. Today's event was not comparable to last year, as the flowers are still pretty tight and thus losing only selected petals so far. As I recall, something close to half the flower load got stripped last year in a couple days.

I'm doing a rare poutpourri (come to think of it there was a slightly different "pourri" subject not too long back, so maybe "uncommon" is more apt) of domestic and not here tonight.

I'm concerned at how little even vaguely thoughtful attention seems to be paid these days in the media most folks apparently settle for to what seems to be a major economic meltdown. Who better to turn to than Mr. Krugman (under title "Taming the Beast"):

We’re now in the midst of an epic financial crisis, which ought to be at the center of the election debate. But it isn’t.

Now, I don’t expect presidential campaigns to have all the answers to our current crisis — even financial experts are scrambling to keep up with events. But I do think we’re entitled to more answers, and in particular a clearer commitment to financial reform, than we’re getting so far.

In truth, I don’t expect much from John McCain, who has both admitted not knowing much about economics and denied having ever said that. Anyway, lately he’s been busy demonstrating that he doesn’t know much about the Middle East, either.

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On the Democratic side, it’s somewhat disappointing that Barack Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton’s initial support, has tried to score a twofer by suggesting that the war, in addition to all its other costs, is responsible for our economic troubles.

The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public. But it’s just wrong to blame the war for our current economic mess: in the short run, wartime spending actually stimulates the economy. Remember, the lowest unemployment rate America has experienced over the last half-century came at the height of the Vietnam War.

Hillary Clinton has not, as far as I can tell, made any comparably problematic economic claims. But she, like Mr. Obama, has been disappointingly quiet about the key issue: the need to reform our out-of-control financial system.

Let me explain.

America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.

Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.

Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

But will that logic prevail politically?

Not if Mr. McCain makes it to the White House. His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Both Democrats, by contrast, are running more or less populist campaigns. But at least so far, neither Democrat has made a clear commitment to financial reform.

Is that simply an omission? Or is it an ominous omen? Recent history offers reason to worry.

In retrospect, it’s clear that the Clinton administration went along too easily with moves to deregulate the financial industry. And it’s hard to avoid the suspicion that big contributions from Wall Street helped grease the rails.

Last year, there was no question at all about the way Wall Street’s financial contributions to the new Democratic majority in Congress helped preserve, at least for now, the tax loophole that lets hedge fund managers pay a lower tax rate than their secretaries.

Now, the securities and investment industry is pouring money into both Mr. Obama’s and Mrs. Clinton’s coffers. And these donors surely believe that they’re buying something in return.

Let’s hope they’re wrong.

Indeed. Neither Dem candidate has had the courage it seems to me to speak bluntly about how tawdry deregulation, sordid back-room consultations, and flat-out subsidies to the largest corporations, which already have far too much influence and control, have weakened our country. It is truly pathetic that both political parties seem to be addicted to bedding down with a fundamental principle of fascism: business takes priority over people.

It's sickening.

Some of my personal therapy for this nausea-inducement today involved getting short and tall edible-pod peas in the ground. I soaked them overnight, then awoke in horror to wonder if I would have to find a full wetsuit to brave rainfall. I noticed that there was abundant almost cacophonous birdsong even in the midst of tumultuous shower activity - I suppose the feathered friends must get on with their amours and feeding more or less regardless of the short-term meteorology. Fortunately the deluge abated around mid-day. I will be watching impatiently for those delectable green shoots. It always seems to take at least a week more than I expect.

I also got a dozen or so potatoes in the ground. I know there's no point in looking at those for several weeks at minimum, but that will not stop me.

The fruit trees are about as pruned as they're going to get, and buds are almost embarrassing in their state of arousal. There can't be more than a couple neglected unpruned roses out there. Rhubarb is shouldering its' way out of the ground, as is Gunnera.

Spring is here.

And hope.